Speaking at the International Monetary Fund in Washingto, the Fed chairwoman argued that promoting stability through interest rate adjustments would increase inflation and employment volatility. Yellen also said central bankers shouldn't necessarily alter interest rates as a direct response to a shift in stability.

"As a result, I believe a macroprudential approach to supervision and regulation needs to play the primary role," Yellen said to an audience at the IMF.

Despite her views on financial stability and the role of rate-setting policy, Yellen said the Fed should continue to communicate clear monetary policy to the market.